CAMB.L Regulatory News (CAMB)

25 November 2020

Cambria Automobiles plc

("Cambria" or the "Group")

AIM: CAMB

FINAL RESULTS 2019/20 AND NOTICE OF AGM

Resilient performance despite significant period of turbulence as a result of COVID-19

Cambria, the franchised motor retailer, announces its final results for the year to 31 August 2020.

The Group reported a strong first half of the financial year, however the trading performance in the second half was significantly impacted by the COVID-19 pandemic and particularly the enforced national lockdown for the period 24 March 2020 to 31 May 2020, which required the closure of all non-essential retail businesses, including car showrooms.

Financial Highlights

* These items exclude net non-recurring expense of £1.0m relating to reorganisation costs and acquisition costs (2019: profit on disposal of property assets held for resale £0.4m and closure costs £0.2m) See Note 4

**The adoption of IFRS 16 has an impact on the PBT, Operating Profit and EBITDA calculation as a result of the operating lease expense for rent payable being unwound and replaced with depreciation and finance expense. See Note 3.

· Strong balance sheet - net assets £71.7m (2019: £65.6m)

· Strong operational cash flows, net cash flow from operating activities of £16.4m (2019: £22.2m)

· Net cash of £3.5m (31 August 2019: net debt £3.8m), supported by the UK Government's Coronavirus Job Retention Scheme and Business Rates relief measures

· Continued disciplined investment in freehold property portfolio during year, deploying £4.2m in capital expenditure

· Underlying Return on Equity at 13.1% (2018/19: 16.0%)

Operational Headlines

· New unit sales to retail customers reduced 25.2% (like-for-like down 25.5%), and gross profit reduced despite the 2.7% (like-for-like up 1.5%) increase in profit per unit

· Lower margin Fleet and Commercial units reduced 33.3% and 39.7% respectively

· Overall unit sales of new vehicles reduced by 26.3% (like-for-like down 26.5%)

· Used vehicle unit sales down 20.9% following March lockdown (like-for like down 21.3%), partially offset by a 7.7% (like-for like 6.4%) improvement in profit per unit

· Aftersales Revenue reduced 14.7% (like-for-like down 15.3%)

· Group's entry into the Scottish market with the acquisition of an Aston Martin dealership and its Freehold Property in Edinburgh taking the Group to four Aston Martin dealerships

· Strengthening of High Luxury Segment with acquisition of Rolls-Royce Motor Cars dealership in leasehold premises in Edinburgh, welcoming this prestigious brand into the portfolio

· Refranchising of Volvo Preston into Alfa Romeo and Jeep to create FCA Brand centre in Preston

· Completion of land purchase in Solihull for the development of Aston Martin Birmingham site relocation

Mark Lavery, Chief Executive Officer of Cambria said:

"The unprecedented and ongoing effects of the Covid-19 pandemic have put the Group through the most challenging period in its history, though against this backdrop the business has demonstrated its resilience. We endured the material and devastating impact of Lockdown 1 (24 March until 31 May), followed by the bounce back and pent up demand experienced during the summer months, which went some way to offsetting the damage the pandemic inflicted during that time.

The performance in the first half of the financial year to 29 February 2020 was unaffected by the pandemic and we had traded strongly during this period. In our Interim Results published on 6 May 2020 we highlighted that the impact of the pandemic and that the national lockdown would have a material negative impact on the financial performance in the second half and particularly during the March to May period, the year on year negative variance was significant.

The dramatic economic impact of the pandemic forced the Board to consider all its operating procedures and Guest handling processes. We took decisive action to protect the Group and to make it leaner, more flexible and agile in preparation for a very different market place and society once we emerged from the crisis.

At the time of writing, we are in the second enforced national lockdown and whilst our leaner, more flexible and more agile business is better equipped to deal with the challenges of a lockdown on our industry, it is still having a significant impact on our day to day trading.

I have flagged in previous statements that the motor industry is facing some significant changes over the coming years. We are concerned about our future relationship with the EU post conclusion of the BREXIT transition period on December 31st this year as this may lead to tariffs being in place for cars and parts being imported from Europe, which will drive up the price of those goods to UK consumers.

Our manufacturer partners continue to face the challenges of meeting compliance with the 2020 and 2021 CO2 emissions targets and a number are facing significant fines for failing to meet the targets set. The UK Government has announced that it will be banning the sale of Internal Combustion Engine propelled vehicles from 2030 and Hybrids from 2035. These decisions will drive a need for the automotive manufacturers to develop compliant vehicles at a significant rate and incur a huge amount of R&D spend in doing so which will invariably drive up the price of vehicles for the general public. Along with the National Franchised Dealer Association and other motor retail executives, I have lobbied hard to try to stop government ministers from making this unfortunate decision and instead urged them to consider a more technology agnostic and balanced approach to achieving net zero by 2050. Political factors appear to be dominating the decision-making process rather than a coherent plan to finding the right practical solutions for reducing carbon emissions towards Net Zero by 2050.

The significant increase in unemployment will only accelerate post the conclusion of the Government Furlough scheme due to finish at the end of March 2021 and this leads me to be cautious about the coming financial year.

I would like to thank all our Associates across the business for their incredible application and flexibility during this unprecedented time and without which we would not have been able to navigate the challenges that the Covid-19 pandemic has forced upon the organisation.

Trading in the current financial year started well, with September and October results ahead of the previous year before the enforced Lockdown 2 commenced, which has again had a material negative impact on trading.

As a result of the unprecedented challenges imposed by COVID-19, Lockdown 2, the structural changes facing the Automotive Industry and the economic challenges that the UK will face post BREXIT and pandemic, the Board remains cautious in its outlook though confident that the Group has the right business model to face the challenges ahead."

Continued Suspension of Forward Guidance

The enforced national Lockdown 2 period (which commenced on 5 November) has resulted in the Group's car showrooms being required to close. This will have a material impact on the Group's financial performance in the financial year to 31 August 2021 and as a result, the Board continues to deem it prudent to suspend financial guidance to the market.

Notice of AGM and posting of report and accounts

The Company also gives notice that the Annual General Meeting of the Company will be held at 10.30am on 7 January 2021 at Grange Aston Martin, Hatfield, AL10 9US (the "AGM").

Given the current COVID-19 pandemic and the associated UK Government measures, the AGM this year will need to be held as a closed meeting. Shareholders will not be permitted to attend the AGM other than to meet the quorum requirement under the Company's Articles of Association, for which the necessary members will be provided by the Company. Instead, shareholders are strongly encouraged to submit Forms of Proxy in favour of the Chairman of the AGM in order to ensure their votes will be counted.

In order to protect the health and wellbeing of our shareholders and Associates, any shareholder who seeks to attend the AGM in person, will be prevented from doing so on grounds of public safety. The proceedings of the AGM will be restricted to the formal business set out in the Notice of AGM. The results of the voting on each resolution will be announced and uploaded onto the Company's website promptly following the close of the AGM.

The Company will continue to monitor the UK Government measures. If circumstances change resulting in the lifting of measures preventing the movement or gathering of people before the date of the AGM, it will consider whether it is appropriate to open up the AGM for attendance by shareholders. If this is the case, an update will be given on the Company's website and by way of announcement to the regulatory news service of London Stock Exchange plc.

The annual report and financial statement for the year ended 31 August 2020 (the "Report and Accounts") will shortly be posted to shareholders together with a notice of its AGM.

Copies of the Reports and Accounts and the AGM notice will be made available shortly from the Company's website, www.cambriaautomobilesplc.com, in accordance with AIM Rule 20.

Enquiries:

Chairman's statement

Despite the obvious challenges that the Group has faced during the course of the 2019/20 financial year I am pleased to report that Cambria has delivered a strong set of results in the circumstances. The Group has managed the operation of the business and risen to the challenges imposed by COVID-19 extremely well, balancing the safety of our Associates and Guests with the immediate need to sell vehicles and services and the medium term need to ensure that the Group is well placed to manage itself in a viable manner through the economic challenges that will follow in 2021 and thereafter.

Much of the strategic decision making during the year has been focussed on restructuring operations and cost base optimisation to ensure that the business is leaner, more agile, to ensure that it is able to cope with the evolving economic landscape and specific changes to the automotive industry.

Whilst dealing with the day to day operations, the management team has also continued to deliver on a number of strategic franchising and property investment objectives and been able to demonstrate profitability whilst absorbing those changes and at the same time generating positive net cash.

The Group continues to manage its cash flow well to ensure it has adequate liquidity. Some of the major investment projects were paused as a result of the pandemic and remain under review whilst the Board assesses its options in light of the pandemic, its impact on unemployment, BREXIT and the major changes impacting the automotive industry.

The Group, in its 14th year of trading, delivered £16.2m of underlying EBITDA (excluding IFRS 16 impact) and £11.1m of underlying pre-tax profit.

Since its inception in 2006, the Group has only raised a total of £10.8m in capital and continues to maintain an excellent return on shareholders' funds which this year reached 13.1%.

The strategic acquisitions, franchise changes and greenfield developments which the Group has delivered over the past six financial years have accelerated the Group's growth and created a solid foundation in the Premium and High Luxury Segment (HLS), giving Cambria a broader and enhanced franchised dealership portfolio mix. The addition of the Aston Martin and Rolls-Royce Motor Cars dealerships in Edinburgh in January 2020 continued to enhance the Group's development of its HLS portfolio and expand its geographical spread.

The new car market in the UK continues to come under pressure as a result of lockdowns, BREXIT and challenging emissions targets. 2019 finished with 2.31m registrations for the overall market. Based on the SMMT October outlook report, it is forecast to end 2020 at 1.56m registrations (down 32.5%) and the current forecast is set to see registrations in 2021 only to recover to 2.0m new car registrations. These are against a record 2.69m registrations in 2016. The biggest change in the market remains the diesel segment which is expected to be down 45.5% in the year largely as a result of negative media coverage and government measures.

Looking ahead, the new car market will be further disrupted as a result of the Government's recent announcement, as part of its Green Revolution, that it is bringing forward the banning of the sale of pure Petrol and Diesel cars from 2030 and Hybrids from 2035, which will mean a seismic shift in the need to develop pure Battery Electric Vehicles, currently the only alternative propulsion solution. This will undoubtedly lead to a significant restriction in consumer choice as these vehicles are significantly more expensive to produce than Internal Combustion Engine powered vehicles and the potential abandonment of personalised transport in rural areas.

An immediate challenge for the manufacturers is the need to meet the 2020 and 2021 CO2 emissions targets to avoid the punitive fines that they will receive for each gram of CO2 per kilometer that they exceed their target. These targets were originally set at a European level and therefore the targets that the manufacturer had to meet were averaged across the EU. The UK (which has a bigger component of higher emitting vehicles) was therefore offset by lower emitting countries. Post BREXIT the UK will adopt the same emissions targets for each manufacturer but without the benefit of averaging across the EU. This will therefore force the manufacturers to critically assess which cars they will be able to register in the UK to avoid the fines, making the sale of the cars non-viable. This again will reduce consumer choice and significantly increase the price of new cars supplied to the UK.

Focusing on the Group's 2019/20 results, revenue unsurprisingly reduced by 20.3% to £524.0m (2018/19: £657.8m). Underlying profit before tax decreased by 9.8% to £11.1m (2018/19: £12.3m) and the Group delivered underlying earnings per share of 8.99p (2018/19: 9.78p) - a decrease of 8.1%.

The Group closed the year with net cash of £3.5m (2018/19: net debt £3.8m) after capital investments of £5.4m of which £4.2m was invested into the Group's freehold property portfolio. The Group has net assets of £71.7m (2018/19: £65.6m), underpinned by the ownership of £81.3m (2018/19: £78.4m) of freehold properties.

Group overview

Cambria was established in 2006 with a strategy to build a balanced motor retail group to deliver the self-funded acquisition and turnaround of underperforming businesses. The strategy evolved in 2013 to encompass the acquisition of Premium and High Luxury businesses, located in geographically strategic locations. It has made good progress over the past six years in delivering on this strategy by acquiring businesses and refranchising dealerships as follows:

· Alfa Romeo and Jeep in Preston in March 2020

· Aston Martin and Rolls-Royce in Edinburgh in January 2020

· Vauxhall in Warrington in May 2019

· Citroen in Oldham in May 2019

· Suzuki in Maidstone in April 2019

· Peugeot in Warrington in October 2018

· Lamborghini in Tunbridge Wells in November 2018

· Lamborghini in Chelmsford in April 2018

· McLaren in Hatfield in January 2018

· Bentley in Essex and Kent in January 2018

· Woodford Jaguar Land Rover in July 2016

· Aston Martin Birmingham in May 2016

· Welwyn Garden City Land Rover in January 2016

· Swindon Land Rover in April 2015

· Barnet Jaguar Land Rover in July 2014

Following the refranchising activity outlined above, the Group now comprises 29 locations, representing 44 franchises and 19 brands, a well-balanced brand portfolio spanning the High Luxury, Premium and Volume segments.

These new franchising and property developments are exciting for the Group and demonstrate its commitment to developing the Premium and High Luxury Segment franchises in geographically strategic locations.

Dividend

As a result of the COVID-19 pandemic and uncertainty over the outlook the Board has suspended dividends and does not propose a final dividend in respect of the financial year 2019/20 (2018/19: 0.85p). 

Outlook

As highlighted at the start of my report, the COVID-19 pandemic has led to unprecedented social and economic challenges. We have little visibility on how this will continue to impact the way in which we live our lives day to day. This obviously has an impact on how motor cars are sold and since March 2020 the amount of travel that employees need to undertake for work has significantly reduced with home working and smarter technology usage for meetings becoming the norm.

The UK economy remains in a period of significant uncertainty while the ramifications of leaving the EU are worked through. Even at this late stage there is little clarity on how or if any free trade agreements will be negotiated and there continue to be major implications for the Sterling exchange rate and other fiscal levers. We are unclear as to how these factors will impact the UK motor trade although both a weaker Sterling and any tariffs would undoubtedly have a detrimental effect on the new car market.

The team has done a good job in navigating through the challenges and continues to evolve the Group strategy in light of the risks and opportunities.

Philip Swatman

Chairman

Operating and financial review

Chief Executive Officer's review

Introduction

The financial year to 31 August 2020 has seen the Group, like the rest of society, operate through truly unprecedented times. Despite the challenges that the COVID-19 pandemic has had upon the way in which we trade and the impact that the enforced lockdown from 24 March to 31 May had on the ability to retail vehicles we have delivered a good financial result in the circumstances.

The table below summarises our financial performance, which is detailed in the Finance Director's Report:

* These items exclude net non-recurring expense of £1.0m relating to reorganisation costs and acquisition costs (2019: profit on disposal of property assets held for resale £0.4m and closure costs £0.2m) - See Note 4

*\* The adoption of IFRS 16 has an impact on the PBT, Operating Profit and EBITDA calculation as a result of the operating lease expense for rent payable being unwound and replaced with depreciation and finance expense. See Note 3.

The pandemic has forced us to change the way in which we operate with all the necessary personal protection and social distancing in place. The business is leaner and more agile and this will enable it to respond effectively to the changing nature of vehicle supply and customer demand.

The Group celebrated its 14th anniversary in July 2020. During those 14 years the Group has grown from one site with three new car franchises to 29 locations representing 44 new car franchises and 19 different brand partners. The Group has utilised a total of £10.8m of Share Capital to grow and has delivered an underlying Profit before Tax of £11.1m in 2019/20. During the year, the Group delivered a return on shareholder funds of 13.1%. The Group has consistently delivered strong operational cash flows and has built a net asset position of £71.7m underpinned by £81.3m of freehold property. The Group has developed an exceptional franchise portfolio which has been enhanced further during 2020 with the addition of our first Rolls-Royce Motor Cars dealership and fourth Aston Martin dealership, both in Edinburgh in January 2020.

The year under review was impacted significantly by Lockdown 1 in the period between 24 March and 31 May. As the country headed towards Lockdown 1, the Board took a series of steps to deal with the lockdown instruction:

On 23 March and in line with Government instructions, all Group car showrooms closed from midnight and the Group ensured that all assets were secured. Outstanding servicing and warranty repairs were fulfilled with enhanced personal safety measures in place. As a precautionary measure, there was a full drawdown of the £40m RCF facilities to ensure liquidity and to protect the cash balance. All capex projects were put on hold and kept under review. Some of the aftersales facilities remained open on a limited basis to support essential and key workers primarily.

During the lockdown period, the Board agreed to salary reductions of 20-50%. The Board carried out a detailed review by site and department of the operating structure and Associate base. Following the support package announcement on Friday 20 March, the 'Coronavirus Job Retention Scheme' was fully utilised. Business rates waivers were applied for across all sites. The Board carried out a detailed expense review by site and department to minimise the cash burn during the lockdown period. During the period the Group also maintained timely tax payments so that it did not build up a deferred payment liability.

Following the reopening of car showrooms from 1 June 2020 onwards the Group has operated in line with stringent operating guidance to ensure the safety of our Associates and Guests utilising PPE, hand sanitising and social distancing measures in the business.

In the period post lockdown, between 1 June and 31 August, the business performed well and whilst we were selling fewer cars year on year, the profit retention particularly in the used car segment was strong. Aftersales performed well in the period post lockdown and the Group's cost base was well controlled.

Whilst I had never envisaged having to close the doors on the business that had taken 14 years to build in 24 hours I believe that the whole of the Cambria Associate base reacted positively and professionally to deal with it as effectively as possible. For those Associates placed on Furlough this will have been a challenging and unsettling time and for those Associates that continued to work throughout the lockdown period it has undoubtedly been tiring. I am grateful to all our Associates that have continued to support the business throughout.

Brand partnerships

Management has continued to work hard to improve the businesses acquired in previous years and to integrate and develop those acquired and established in the current year,

Our current portfolio of brand partners and dealerships comprises:

A significant period of refranchising activity began during the 2017/18 financial year which demonstrated delivery of the Group's development strategy which evolved in 2013 to enhance our Premium and High Luxury brand representation. This continued in 2020 with the addition of the Group's fourth Aston Martin business and first Rolls-Royce Motor Cars business both in Edinburgh. The Acquisition was from the Administrator of Leven Cars Group Limited and included the trading assets and the freehold property occupied by the Aston Martin business for a total consideration of £1.7m.

Operations

New vehicle sales

New vehicle revenue reduced from £293.8m to £218.3m (down 25.7%) with total new vehicle sales volumes being down 26.3%. Gross profit decreased by £4.9m (23.8%) in total. The reduced new vehicle volumes were partially offset by the improvement in the gross profit per unit sold which increased by 4.0% in total.

On a like-for-like basis, excluding the impact of the additions, our new volumes reduced by 26.5% with gross profit reducing by £5m as profit per unit increased 2.8% on a like for like basis.

The Group's sale of new vehicles to private individuals was 25.2% lower year-on-year at 5,116 units (like-for-like down 25.5%), the profit per unit for these vehicles improved 2.7% (like-for-like 1.5%). New commercial vehicle sales transacted at a low profit per unit and were significantly down by 39.7% to 235 units in the period. New fleet unit vehicle sales decreased by 33.3% to 184 units in the period.

The new vehicle registration data from the Society of Motor Manufacturers & Traders showed total registrations were down 26.2% in the rolling 12 month period to August 2020. The registration of cars to private individuals was also down 24.6% for the rolling 12 months. The sale of diesel engine vehicles has been hardest hit as a result of the negative media coverage around diesel engine emissions, and in the period, sales of diesel vehicles were down 39.9%.

Used vehicle sales

We have delivered another good performance in used vehicle sales despite the impact of lockdown. Revenues decreased from £302.8m to £252.2m (down 16.7%) whilst the number of units sold declined by 20.9%. The gross profit on used vehicles decreased by £3.7m to £21.4m, with profit per unit sold increasing by 7.7%.

On a like-for-like basis, volumes were down 21.3% while the gross profit per unit increased by 6.4%.

We have continued our focused strategy in the used car department to increase the efficiency with which we source, prepare and market our used vehicles in order to drive our Velocity trading principles. This has produced strong results, increasing the profit per unit retailed. During the period the lockdown obviously impacted stock turn as we were unable to retail the stock that we had at the point of lockdown. Despite the reduced gross profit derived as a result of the lockdown, this strategy continued to deliver a strong 12 month rolling return on used car investment* of 97.4%. This level was reduced from the 117% achieved last year without the impact of lockdown. The ROI performance at 97.4% remains significantly ahead of the industry average of 75.6%.

* gross profit from used car operation over 12 months as a proportion of average stock levels for the year

Aftersales

Combined aftersales revenue decreased 14.7% year on year from £76.9m to £65.6m and related gross profit decreased to £26.0m from £29.4m. Like-for-like aftersales revenues were 15.3% lower year on year, with gross profit reducing 13.6% to £25.4m, down £4m.

The aftersales departments contributed 12.5% of the Group's revenue, and 41.2% of the Group's overall gross profit. The aftersales margin was improved in the year.

The Group continues to review its processes for ensuring that we engage with all of our Guests to maximise the opportunity to interact with them through our Guest Relationship Management Programme. This is our contact strategy involving the sale of service plans and delivery of service and MOT reminders in a structured manner, utilising all forms of digital media as well as traditional communication methods. The Group continues to focus on the sale of service plans and its unique warranty-4-life product to enhance Guest retention.

Administrative Expenses (including Government support)

Total underlying administrative expenses remained tightly controlled during the year but also benefitted from the Government support stimulus in the form of the Coronavirus Job Retention Scheme and Business Rates relief which amounted to £5.5m in the period. Administrative expenses as a percentage of revenue were 9.6% (2018/19: £9.3%), demonstrating good overhead recovery and strong capital disciplines as the Group navigated through the pandemic.

Automotive Industry Issues

Over the next few years, new vehicle sales will continue to be impacted by three factors. The impact of BREXIT, the immediate impact of the fines from the Corporate Average Fuel Economy (CAFÉ) legislation and most recently the Government's decision to bring forward the banning of the sale of Internal Combustion Engine vehicles to 2030.

In the near term we will find out if there is a free trade agreement to govern the UK's dealings with the EU. Given the size of the Automotive Industry in the UK and the scale of the sales of parts and cars between the UK and the EU this should be a significant consideration for both sides in the negotiation. At the time of writing the terms of any deal that is being discussed have not been released. If there are tariffs on the sale of cars both ways it will impact consumer choice and the cost of cars to consumers. This is not in the interest of either side of the negotiations but is a genuine issue that the UK motor retail trade is facing. For the avoidance of doubt the industry requires a completely frictionless and tariff free trade agreement with the EU for it to be effective.

The supply of cars in the UK is being impacted and dictated by the manufacturers' needs to comply with the 2020 and 2021 onwards CAFÉ' regulations which govern the emissions targets for each manufacturer. Failure to meet the emissions target for a manufacturer in a given year generates a fine equivalent to €95 per gram of CO2 over the target, multiplied by the number of cars that the manufacturer registers. It is no surprise that the manufacturers are being selective about which cars they manufacture and register in any given period. Post BREXIT this impact in the UK will be amplified as the target for a given manufacturer will be based on the registrations in the UK alone, not averaged across the EU. This will impact supply in the UK in 2021.

The decision by the Government to bring forward the banning of the sale of pure ICE engine vehicles from 2040 to 2030 and Hybrids from 2030 is best described as a "Date without a Plan". We have lobbied Government ministers continuously with the hope that they will consider a balanced approach that is technology agnostic in meeting the objective on Net Zero by 2050. We fully support the aim of Net Zero which is completely necessary. We do object to Battery Electric Vehicles (BEV) being determined as the only viable solution because of the way in which the political momentum is driving decisions that will impact technology development, the environment and will not achieve the Net Zero ambition on a whole lifecycle basis. Some of the challenges around BEV as the only solution are as follows:

· Polestar have calculated that the breakeven Carbon Emissions point between its Polestar 2 full BEV and a Volvo XC40 Petrol ICE engine car is not reached until the cars have driven 119,000km in a global test environment. This is caused by the significantly higher Carbon output from the production of a BEV over an ICE vehicle

· All current battery power units include 10 to 12 kilograms of Cobalt of which a significant amount comes from the People's Democratic Republic of Congo. Some of this is being mined by children and these practices are currently part of an ongoing investigation by Amnesty International into child slavery

· Cobalt and Lithium are still described are rare earth materials and are therefore finite in resource

· More than 70% of batteries begin life in China being manufactured using coal fired power stations. The Batteries are then shipped around the world after having had multiple commodity inputs (including cobalt) shipped to China in the first instance leaving a huge carbon footprint

· Recycling Electric Vehicles is much more difficult because of the battery. Whilst batteries can be reused for second life energy storage in wind farms etc they do degrade and will end their life at some point - currently in landfill

· We do not yet know the impact of a significant shift in the number of Electric Vehicles on the National Grid and whether or not it will be able to cope with those demands. The power generated for the National Grid typically comes from Nuclear Power Stations so increased electricity consumption for Electric cars needs to be generated from somewhere

· We do not have the charging infrastructure in the UK to cope with the demand for this technology switch and it will take billions of pounds of investment to meet this demand. Anyone in the UK without a private drive or garage will need to rely on plugging their vehicle into roadside charge point of which there will be few per average street

· The cost of producing a BEV over an ICE engine car is significantly higher

· BEV's are significantly more expensive and there is a danger that a new vehicle becomes an exclusive club available only to metropolitan, well-off citizens and an abandonment of rural Britain

· Ultimately the cost of electrification will be borne by the soft target of the UK car purchasing consumer

The acceleration by Government to a single technology solution will put a stop to any R&D that the manufacturers were considering to evolve the development of Hybrid, Hydrogen and Synthetic Fuel technologies which could all achieve the aim of Net Zero in a better manner than the route which is being forced by the policy implementation.

Outlook

The new car market in 2019 hit 2.311m registrations. The current SMMT forecasts for 2020 following Lockdown 1 and 2 is now 1.56m with a recovery to 2.0m in 2021 forecast.

We are facing challenges as a result of the COVID-19 pandemic, BREXIT and the Automotive specific issues highlighted above. We are reacting positively as we get transparency on each of the areas where we see risk and opportunity and continue to be agile in dealing with them.

Despite the significant external challenges, the 2019/20 financial year delivered an acceptable set of results. Post the period end, September and October trading were ahead of prior year. The imposition of Lockdown 2 has impacted the progress that the Group was making and despite the fact that operationally we were better prepared for Lockdown 2 than we were in March when Lockdown 1 was imposed, it is still causing a significant impact on trading.

Mark Lavery

Chief Executive

Finance Director's report

Overview

Total revenues in the period decreased 20.3% to £524.0m from £657.8m in the prior year. New vehicle unit volumes were down 26.3% and new vehicle revenues were down 25.7%. Used car revenue decreased by 16.7% with units reduced by 20.9%. Revenues from the aftersales businesses decreased by 14.7%, compared with the previous year.

Total gross profit decreased by £12.0m (15.9%) from £75.1m to £63.1m in the year. Gross profit margin across the Group improved 0.6% to 12.0%. The revenue mix saw an increase in used cars and aftersales with new cars a reducing proportion of revenue. The average selling price of both new and used cars increased year on year, as did the average profit per new and used units that we sold. There was an improvement in the new car margin to 7.2%, an improvement in used car margin to 8.5% and margin improvement in aftersales to 39.6%. The aftersales operations contributed 41.2% of the total gross profit for the Group. The gross profit contribution made by the used car and aftersales components of the business accounted for 75.1% of the Group's total gross profit mix.

During the year, the Group had non-recurring expenses of £1.0m (2018/19 net income of £0.2m). These related to the acquisition of the businesses of £0.14m and reorganisation costs of £0.81m.

The adoption of IFRS 16 has had a material impact on the calculation of EBITDA. In order to make sure that there is transparency and comparability we have provided a full reconciliation of EBITDA in Note 3. The comparable Underlying EBITDA (before IFRS 16 impact) was £16.2m in the period, slightly down from £17.1m in the previous year. Following adoption of IFRS 16 the Underlying EBITDA for the period was £18.8m because of the significant add back of depreciation on the right of use asset (£2.07m), Finance expense resulting from the Lease liability (£0.3m) and the fact that it doesn't include rent payments of £2.5m. Whilst I do not personally agree with IFRS 16 or what it does to a set of accounts and readers' perception of EBITDA, we have included both measures for clarity.

Underlying operating profit was £13m, compared with £13.6m in the previous year, resulting in an underlying operating margin of 2.5% (2018/19: 2.1%).

Net finance expenses increased to £1.9m (2018/19: £1.4m). IFRS 16 impacts this also and this split of the £1.9m expense represents third party interest costs of £1.6m and interest on lease liabilities of £0.3m.

The Group's underlying profit before tax decreased by 9.8% to £11.1m, compared with £12.3m in the previous year.

Underlying earnings per share were 8.99p (2018/19: 9.78p). Basic earnings per share were 8.22p (2018/19: 9.95p) and the Group's underlying return on shareholders' funds for the year was 13.1% (2018/19: 16.0%).

Taxation

The Group tax charge was £1.97m (2018/19: £2.5m) representing an effective rate of tax of 19.3% (2018/19: 20.3%) on a profit before tax of £10.2m (2018/19: £12.5m). As outlined in last year's report, it is anticipated that the tax rate will continue at a substantially normal effective tax rate.

Financial position

The Group has a robust balance sheet with a net asset position of £71.7m underpinned by £81.3m of freehold property (fixed assets and assets held for resale) which are held on a historic cost basis.

In November 2017, the Group entered into revised Banking facilities and as a result, the £40m Revolving Credit Facility has no fixed capital repayment profile throughout its five year term.

The cost of the facilities is LIBOR plus a margin. The margin attributable to the term loans will be set each quarter and is dependent on the net debt: EBITDA ratio for the Group. The spread of margin chargeable against the facility ranges from 1.2% where the net debt is less than 1 times EBITDA, up to 2% where the net debt is greater than 2.5 times EBITDA.

The net cash position of the Group as at 31 August 2020 was £3.5m (2018/19: net debt £3.8m), reflecting a cash position of £5.6m (31 August 2019: £26.3m) and debt position of £2.1m (2018/19: £30.1m).

The Group typically uses bank facilities to fund the purchase of freehold and long leasehold properties, stocking loans to fund the acquisition of consignment, demonstrator and used vehicles and has a £10m overdraft facility which is available to manage seasonal fluctuations in working capital. The overdraft facilities are renewable annually and are next due on 31 January 2021.

Cash flow and capital expenditure

The Group generated an operating cash inflow of £16.4m with working capital reducing by £1.9m through efficient management of the vehicle inventory and the stocking lines associated with that inventory. Total funds invested in capital expenditure and acquisitions were £5.4m.

During the year the material investments were:

· Purchase of Solihull Land for Aston Martin dealership development - £1.9m

· Acquisition of Aston Martin Edinburgh freehold - £1.6m

· Planning and land enhancement - £0.6m

· Other minor refurbishments - £0.5m

The Group has had the RCF drawn to varying degrees throughout the year primarily to ensure that the Group had sufficient liquidity during the lockdown period. At the period end the Group had £2.1m drawn having repaid a net £30m during the period.

As a result of the net cash outflow of £20.6m, the gross cash position was £5.8m with gross debt of £2.1m and overall net cash of £3.5m compared with net debt at 31 August 2019 of £3.8m.

Capital expenditure commitments

As outlined in previous Chief Executive's reports, the Group has committed to delivering property solutions to ensure the acquired businesses over the past few years comply with the franchise standards for its brand partners. Over the coming few years, the Group intends to complete the following major freehold investments; Solihull Aston Martin at c.£3m, Brentwood Jaguar Land Rover, Aston Martin, Bentley and Lamborghini c.£16m. The developments will be funded through a drawdown of RCF and existing cash.

The Board is committed to these investments and anticipates that by making the investments it will put the Group in a strong position to realise the full operational potential of the businesses.

IFRS 16 Impact

IFRS 16 Leases is effective for the first time in the current financial year and has been adopted by the Group.

The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet. Lessor accounting is substantially unchanged from IAS 17 and therefore IFRS 16 does not have an impact for leases where the Group is a lessor.

The Group adopted IFRS 16 for the first time using the modified retrospective approach with an effective date of 1 September 2019. The Group elected to use the practical expedient on transition to not reassess whether a contract is, or contains, a lease at 1 September 2019. Instead the Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of application.

The Group also elected to use the recognition exemptions for lease contracts that, at the transition date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases) and, lease contracts for which the underlying asset is of low value (low-value assets). The incremental borrowing rate applied to the lease liabilities on 1 September 2019 was 4.0%.

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases for which it is the lessee, except for short-term leases and leases of low-value assets. The Group recognised lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. In accordance with the modified retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts.

As at 1 September 2019:-

· Right-of-use assets of £5,982,000 were recognised;

· Lease liabilities of £8,517,000 were recognised;

· Trade and other receivables relating to operating leases of £68,000 were recognised;

· Deferred tax liabilities decreased by £249,000 due to the deferred tax impact of the changes in recognition of the related assets and liabilities;

· Provisions reduced by £1,000,000 in respect of onerous lease provision no longer recognised;

· Retained earnings decreased £1,218,000 as a result of the net impact of these adjustments.

Shareholders' funds

There are 100,000,000 ordinary shares of 10p each with an associated share premium account of £0.8m. There were no new funds raised during the year; therefore the share capital and share premium account remain at £10.8m, consistent with the prior year. All ordinary shares rank pari passu for both voting and dividend rights.

Pension schemes

The Group does not operate any defined benefit pension schemes and has no liability arising from any such scheme. The Group made contributions amounting to £0.6m (2018/19: £0.6m) to defined contributions schemes for certain employees.

Financial instruments

The Group does not have any contractual obligation under any financial instruments with respect to the hedging of interest rate risk.

Dividends

As outlined in the Chairman's report and as previously advised, the Board has suspended payment of dividends and therefore does not propose a dividend for the financial year to 31 August 2020.

James Mullins

Finance Director

Consolidated statement of comprehensive income

for year ended 31 August 2020

All comprehensive income is attributable to owners of the Parent Company.

Consolidated statement of changes in equity

for year ended 31 August 2020

Consolidated statement of financial position

at 31 August 2020

Consolidated cash flow statement

for year ended 31 August 2020

1 Accounting policies

These financial statements as at 31 August 2020 consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The Parent Company financial statements present information about the Company as a separate entity and not about its group.

International Financial Reporting Standards

IFRS 16 Leases is effective for the first time in the current financial year and has been adopted by the Group.

IFRS 16 supersedes IAS17. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet. Lessor accounting is substantially unchanged from IAS 17 and therefore IFRS 16 does not have an impact for leases where the Group is a lessor.

The Group adopted IFRS 16 for the first time using the modified retrospective approach with an effective date of 1 September 2019. The Group elected to use the practical expedient on transition to not reassess whether a contract is, or contains, a lease at 1 September 2019. Instead the Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of application. The Group also elected to use the recognition exemptions for lease contracts that, at the transition date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases) and, lease contracts for which the underlying asset is of low value (low-value assets). The incremental borrowing rate applied to the lease liabilities on 1 September 2019 was 4.0%. 

International Financial Reporting Standards (continued)

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases for which it is the lessee, except for short-term leases and leases of low-value assets. The Group recognised lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. In accordance with the modified retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts.

As at 1 September 2019:-

· Right-of-use assets were recognised and presented on the face of the consolidated statement of financial position;

· Additional lease liabilities were recognised and presented on the face of the consolidated statement of financial position;

· Trade and other receivables relating to operating leases were de-recognised;

· Deferred tax liabilities decreased due to the deferred tax impact of the changes in recognition of the related assets and liabilities;

· Provisions reduced in respect of onerous lease provision no longer recognised;

· Retained earnings decreased as a result of the net impact of these adjustments.

Impact on the consolidated statement of comprehensive income (increase/(decrease)):

Impact on the consolidated cash flow statement increase/(decrease)):

A reconciliation of the total operating lease commitments to the IFRS 16 lease liability at 1 September 2019 is as follows:

The following accounting standards and interpretations, issued by the IASB and endorsed by the EU or International Financial Reporting Interpretations Committee (IFRIC), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on the consolidated results or financial position:

■ Annual Improvements to IFRSs - 2015-2017 Cycle (effective date 1 January 2019)

■ Amendments to IAS 28 - Investments in Associates and Joint Ventures (effective date 1 January 2019)

■ IFRIC 23 - Uncertainty over Income Tax Treatments (effective date 1 January 2019)

■ Amendments to IFRS 9 - Prepayment features with negative compensation (effective date 1 January 2019)

■ Amendment to IAS 19 - Plan amendment, curtailment or settlement (effective date 1 January 2019)

■ Covid-19-Related Rent Concessions (Amendment to IFRS 16) - early implementation

The IASB and the IFRIC have also issued the following standards and interpretations with an effective date after the date of these Financial Statements and which therefore have not been applied in the current period. No significant impact is anticipated from the introduction of these standards in future periods:

New standards and interpretations endorsed but not yet effective:

■ Amendments to IAS1 & IAS 8 - definition of material (effective date 1 January 2020)

■ Amendment to IFRS 3 - definition of business combination (effective date 1 January 2020)

■ Amendments to references to the conceptual Framework in IFRS Standards (effective date 1 January 2020)

New standards and interpretations not yet endorsed and not yet effective:

■ IFRS 17 - Insurance contracts (effective 1 January 2023)

■ Annual Improvements to IFRSs - 2018-2020 Cycle

■ Reference to the Conceptual Framework (Amendments to IFRS 3)

■ Amendments to IFRS 17 and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)

■ Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

■ Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

■ Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)

■ Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

2 Revenue

The Group derives its revenue from contracts with customers for the transfer of goods and services over time and at a point in time in the following major product lines. This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 Operating Segments (see note 3). Set out below is the disaggregation of the Groups revenue from contracts with customers:

Timing of revenue recognition

The Group recognises all income at a point in time when the performance obligations are satisfied and has not identified any significant income recognised over time or received in advance of performance obligations.

3 Segmental reporting

The Group has adopted IFRS 8 'Operating Segments' which determines and presents operating segments based on information presented to the Group's Chief Operating Decision Maker ("CODM"), the Chief Executive Officer. The Group is operated and managed on a Dealership by Dealership basis. Dealerships operate a number of different business streams such as new vehicle sales, used vehicle sales and after sales operations. Management is organised based on the dealership operations as a whole rather than the specific business streams. Dealerships are considered to have similar economic characteristics and offer similar products and services which appeal to a similar customer base. As such the results of each dealership have been aggregated to form one reportable operating segment.

All segment revenue, profit before tax, assets and liabilities are attributable to the principal activity of the Group being the provision of car vehicle sales, vehicle servicing and related services. Therefore to increase transparency, the Group has included below additional voluntary disclosure analysing revenue and gross margins within the reportable segment.

The CODM reviews the performance of the business in terms of both net profit before tax and EBITDA, as such the following table shows a reconciliation of the Profit before tax to EBITDA.

The EBITDA in the period varies significantly with the prior year comparative as a result of the transition to IFRS 16 lease accounting which reverses operating lease expenses and replaces it with Depreciation on the right of use assets and finance expenses in relation to the lease liability for those leased assets.

4 Non-recurring expense/ (income)

During the COVID-19 lockdown period the Group undertook a detailed review of the business structure and operating costs. As a result of the operating impact of the pandemic, the Board took the decision to implement a rationalisation programme which led to a significant reduction in the number of Associates through a redundancy programme. The one-off cost of this relating to redundancy programme was £812,000.

5 Staff numbers and costs

The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

The aggregate payroll costs of these persons were as follows:

6 Earnings per share

Basic earnings per share are calculated by dividing the earnings attributable to equity shareholders by the number of ordinary shares in issue in the year. There is one class of ordinary share with 100,000,000 shares in issue.

The Underlying Return on Equity number has been calculated as the adjusted profit attributable to equity shareholders divided by the unweighted average shareholder funds taking the average of the opening and closing shareholders equity from the statement of financial position. The calculation is therefore £8,992,000 divided by £68,654,000 giving 13.1%.

Basic earnings per share

Diluted earnings per share

During the period the Group cash settled a number of the vested share options and the performance conditions relating to certain other share options were satisfied and therefore 604,662 share options are considered dilutive at the year-end.

7 Finance income and expense

Recognised in the income statement

8 Taxation

Recognised in the income statement

Reconciliation of total tax

The applicable tax rate for the current year is 19% (2019: 19%).

Reductions to 17% (effective 1 April 2020) was substantively enacted on 6 September 2017 and was subsequently cancelled on 11 March 2020.

9 Property, plant and equipment

As at 31 August 2020 the Group developing planning applications for both the Solihull Aston Martin Dealership and the Brentwood development. There were no committed contracts in place at the balance sheet date. (2019: £Nil).

The Directors have considered the property portfolio for impairment by comparing the carrying amount to the higher of value in use or market value and have concluded that no impairment is required.

Security

The title of all freehold properties have been pledged as security to the Revolving Credit Facility disclosed in note 15.

10 Intangible assets

Amortisation charge

The amortisation charge is recognised in the following line items in the income statement:

Impairment loss and subsequent reversal

Goodwill and indefinite life intangible assets considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash generating units or Groups of cash generating units. For the purpose of impairment testing of goodwill and other indefinite life assets, the Directors recognise the Group's cash generating units ("CGU") to be connected groupings of dealerships. The identified CGUs, grouped for allocation of goodwill are as follows:

The recoverable amount of the JLR CGU has been calculated with reference to its value in use. These calculations use projections based on financial budgets approved by the Board of Directors which are extrapolated using an estimated growth rate. The budgets were prepared to 31 August 2021 and then projected for a further 4 years. The underlying expected performance of the CGU gives sufficient headroom using conservative assumptions, a growth rate of 0% was applied, and a terminal value was included with a 0% growth rate in perpetuity. The discount rate used is 8%.

Management has also performed a review of forecast EBITDA for the CGU for a number of years based on the EBITDA multiples being paid for equivalent businesses in the marketplace. The Board reviews transactional information and assesses the businesses earnings capacity in order to ensure that the recoverable amount is in excess of the carrying amount.

Sensitivity to changes in assumptions

The estimated recoverable amounts for the JLR CGU exceeds the carrying amounts by approximately £52m (2019: £73m). The Group has conducted sensitivity analysis on the impairment testing. Management believe no significant change in the key assumptions would cause the carrying amount to exceed the recoverable amount for the CGU.

The value in use exceeds the above carrying values for each CGU, therefore no impairment is considered necessary.

11 Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

The amount of temporary differences, unused tax losses and tax credits for which a deferred tax asset is recognised is set out below, along with the movement in the balance in the year. The asset would be recovered if offset against future taxable profits of the Group.

Unrecognised deferred tax assets and liabilities

The deferred tax asset in relation to loss carried forward within a subsidiary has not been recognised due to uncertainty over the future profitability of the subsidiary, these losses are locked in to this particular subsidiary and cannot be utilised in the wider Group.

12 Inventories

Included within inventories is £nil (2019: £nil) expected to be recovered in more than 12 months.

Raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales in the year amounted to £460 million (2019: £581 million). This includes inventory write downs of £161,694 and reversals of previous write downs of £454,743.

Details of stock held as security is given in note 16.

13 Trade and other receivables

Included within trade and other receivables is £nil (2019: £nil) expected to be recovered in more than 12 months.

14 Property assets classified as held for resale

On closure of the Blackburn dealership, the Freehold property has been transferred to assets held for resale at its net book value. There were no movements during the year.

15 Borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost.

Terms and debt repayment schedule

All debt is in GBP currency

16 Trade and other payables